How to Find Dividend Aristocrats

By Sustainable PF

What is a Dividend Aristocrat?

Dividend Aristocrats come from a long line of dividend paying parents. They learned from the time that they were children that they would have to sit up straight and follow the protocol of an aristocrat. Just kidding. But when you hear the word aristocrat, what does it make you think of? I think of large palaces, stuffy dinners, boring conversation and underhanded political manoeuvring. These aristocrats have years and years of ancestors that were aristocrats themselves and possibly came from the lineage of a monarch.

There are stocks that are considered dividend aristocrats and they are considered that because they have continued to grow their dividends year after year. There are two important Dividend Aristocrat lists: S&P 500 Dividend Aristocrats for American Investors and TSX Canadian Dividend Aristocrats for Canadian Investors. Since I know that both will be interesting to see to you as an investor and as a point of comparison, I am going to cover them both.

S&P 500 Dividend Aristocrats

Standard and Poors releases a list of dividend aristocrats and on this list are the fat cats of the stock exchange. These stocks are known to pay dividends and not only pay them, but their dividend increases each year and has done so for the past 25 years. If you head over to StandardandPoors.com and select Indicies, then select the strategy tab, you will see the S&P 500 Dividend Aristocrats Index. Looking at the details we can see that the constituents or members of the index are all large cap, blue chip stocks.

A simple calculation can give you the expected amount of next year’s dividend. If you take the current dividend and multiply it by one plus the dividend growth rate, you will get the expected dividend payout for next year. For example, if today’s dividend is 1.25 a share, a 5% dividend growth rate would increase next year’s dividend to 1.3125 or 1.25(1.05).

TSX Dividend Aristocrats

For Canadians, TSX has their own list of dividend aristocrats. This list is not compiled in the same way as Standard and Poors but it serves as a healthy equivalent. The stocks that make the cut have to be listed on the Toronto Stock Exchange, hence TSX, must have increased dividends each year for the past 5 years and must have a market cap of at least 300 million Canadian dollars. Looking at the same page on Standard and Poors website, you can see that there are only 39 members compared to 42 on the S&P 500 list, and the average market cap is lower.

How to Create a Monthly Paying Portfolio

If you decide to put together a portfolio of dividend paying stocks as a passive income generator, you will probably want to stagger the payments that you expect to receive. There is an easy way to do this. First you will want to check the dividend history for each stock that you are interested in. You then want to check the ex-date and dividend payable date to determine when they will pay a dividend. You can start your research by just selecting dividend aristocrats and then evaluating them based on who pays the largest dividend or you can diversify more.

If you want to participate in dividend stock investing, you can start with the dividend aristocrats and then break them out in terms of market cap. You will find that most stocks on the list are of a larger market cap, and that is because most companies that pay dividends are in the maturing phase of their business cycle and they experience, or should experience, slow and steady growth.

However you start, just remember that there’s no substitute for good research. Just because a stock is valued by someone else doesn’t mean it’s worthy to be in your portfolio.

Have you tried searching for dividend aristocrats?

This is a staff post from LaTisha who writes about investing for beginners, saving and money management for the young adult or recent grad at Financial Success for Young Adults. Visit YoungAdultFinances.com to see more from her.

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18 comments to How to Find Dividend Aristocrats

Great article. I always learn something new when I read one of your articles LaTisha. What would be the downside in investing in something like this? Would it just be that there is no guarantee for these to continue to increase the dividends and that there could be a better investment opportunity? Just curious – thanks.

It’s true that there’s no guarantee, but with 25 years of increasing dividends it’s highly unlikely. I guess the biggest risk would be that the company could go out of business or be bought out. The stock could also drop in value.

Just my take Hunter … It depends on whether you want to diversify across the spectrum of aristocrats companies or pick and choose the ones you believe in. Less diversification can mean great risk however ETFs come with fees that will eat into your portfolio growth. Personally, I invest in both.

Thanks Hunter! I think it really just depends on how much time you want to spend doing research. Individual stocks are pretty risky without doing the due diligence and that takes time. An ETF can be a viable option if you want a more hands off approach. But like SPF said, they do come with more fees.

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